'Uncertainty' just another word for lots to lose

ANALYST'S VIEW

Stock market investors, business owners, statisticians, housewives on a budget, job seekers: all of us hate not knowing what the future holds.

Sure, we like the occasional surprise: a new Lexus in the driveway for our birthday or a gigantic box tied up with a red ribbon under the tree at Christmas. But when it comes to the big things in life, such as job status (employed or unemployed) next year or the snow conditions for the ski vacation next month, we don't relish uncertainty.

The problem is, the future is never certain. Even in the best of times, when the Nasdaq Composite Index was skyrocketing to an 86 per cent gain in 1999, the future was uncertain.

Two- and-a-half years after its peak at 5,133 in March 2000, the Nasdaq was a fraction of its former self. The index fell 78 per cent from its high, and in the last five years never recouped more than 55 per cent of its record.

During good times, central bankers don't pepper their official statements and speeches with references to uncertainty, which makes me think uncertainty is a euphemism for "things are worse than we imagined.'' It's an excuse, in other words: a way to paper over a bad forecast.

Federal Reserve Governor Randall Kroszner used "uncertain'' or "uncertainty'' eight times in a speech on November 16 "� and that's when he was fairly certain the Fed had done enough to offset the tightening of credit conditions in the financial markets.

Fed Vice Chairman Don Kohn used "uncertainty'' five times in a speech last week that was seen as giving the nod to a rate cut on December 11. A quick check on his other speeches this year revealed a high degree of uncertainty, which probably says more about his lifetime tenure at the Fed than the current economic and financial conditions.

Fed Governor Frederic Mishkin holds the record with 14 mentions in a recent speech plus one in the footnotes.

The uncertainty principle isn't confined to US shores.

European Central Bank President Jean-Claude Trichet used "uncertainty'' six times at the November 8 post-meeting press conference. A year earlier, he made only one reference. So when the going gets tough, policy makers haul out uncertainty.

And they aren't the only ones. Equity analysts are quick to recycle that old saw that "the stock market hates uncertainty.'' As my late colleague, Chet Currier, so aptly put it in a 2001 column: "If the market couldn't thrive amid uncertainty, it would have died a long time ago.''

Then there's the overwhelming uncertainty in the structured finance market. The explosion in complex collateralized debt and mortgage obligations in recent years has turned into an implosion for banks, structured investment vehicles and unknowing investors across the globe. No one knows who owns what or what it's worth.

Truth
The truth is, there was a lot of uncertainty when subprime loans were extended to folks with a chequered credit history who didn't have to document their income or put a down payment on the house. ("Renters posing as owners'' is the way one e-mail correspondent framed it.)

Not to be left off the uncertainty bandwagon, Angelo Mozilo, chief executive officer of Countrywide Financial, the biggest US mortgage company, showed up on the Wall Street Journal editorial page (of all places) yesterday with a pitch for government help to allay distress in the subprime market. Treasury Secretary Hank Paulson is working with the mortgage industry and investors to craft a plan that would allow certain delinquent borrowers to stay in their homes.

Mozilo argues for minimum lending standards to ensure that a borrower has the wherewithal to repay his loan. The Countrywide founder wants "clear, objective standards'' to bring investors back into the mortgage market and "� you guessed it "� a dose of "certainty.''

Synonyms
I checked Roget's Thesaurus for synonyms for certainty. The various entries didn't include "government bailout'' or "freezing teaser rates'' or "additional liquidity provision.''

Uncertainty, it seems, is in the eye of the beholder. It's used liberally in bad times, avoided in good times.

Tonnes of other euphemisms are utilized in financial market analysis. When an economist says the US trade deficit is "unsustainable,'' for example, he's really saying, "I've been saying that for seven years and the sucker still hasn't turned around.''

Talk of increased "volatility'' in the stock market is rarely a reference to sharp, exaggerated moves in both directions. When a mutual fund manager talks about volatility, what he means is, "the market's going down hard and I'm losing my shirt.''

Of course, we don't want to know that the folks to whom we entrust our savings, not to mention the stewardship of the economy, are wrong or asleep at the wheel or no smarter than we are.

Then again, maybe we'd rather deceive ourselves than admit that uncertainty is just another word for everything left to lose.